Fractional Cointegration Analysis of Securitized Real Estate

Posted: 24 Feb 2012

See all articles by Camilo Serrano

Camilo Serrano

IAZI AG - CIFI SA

Martin Hoesli

University of Geneva - Geneva School of Economics and Management (GSEM); Swiss Finance Institute; University of Aberdeen - Business School

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Date Written: February 23, 2012

Abstract

This paper uses fractional cointegration analysis to examine whether long-run relations exist between securitized real estate returns and three sets of variables frequently used in the literature as the factors driving securitized real estate returns. That is, we examine whether such relationships are characterized by long memory (long-range dependence), short memory (short-range dependence), mean reversion (no long-run effects) or no mean reversion (no long-run equilibrium). The forecasting implications are also considered. Empirical analyses are conducted using data for the U.S., the U.K., and Australia. We find strong evidence of fractional cointegration between securitized real estate and the three sets of variables. Such relationships are mainly characterized by short memory although long memory is sometimes present. The use of fractional cointegration for forecasting purposes proves particularly useful since the start of the financial crisis.

Keywords: Fractional cointegration, Fractionally integrated error correction model (FIECM), Forecasting, Multifactor models, Securitized real estate, REITs

JEL Classification: G17, G11, C53

Suggested Citation

Serrano, Camilo and Hoesli, Martin Edward Ralph, Fractional Cointegration Analysis of Securitized Real Estate (February 23, 2012). Journal of Real Estate Finance and Economics, Vol. 44, No. 3, 2012, Available at SSRN: https://ssrn.com/abstract=2010041

Camilo Serrano

IAZI AG - CIFI SA ( email )

Tramstrasse 10
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Germany

Martin Edward Ralph Hoesli (Contact Author)

University of Geneva - Geneva School of Economics and Management (GSEM) ( email )

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Geneva 4, Geneva 1211
Switzerland
+41 22 379 8122 (Phone)
+41 22 379 8104 (Fax)

Swiss Finance Institute

c/o University of Geneva
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University of Aberdeen - Business School ( email )

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Aberdeen, Scotland AB24 3QY
United Kingdom
+41 22 379 8122 (Phone)
+41 22 379 8104 (Fax)

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